Texas Attorney General Reaches Agreement with Financial Advisor to Houston-Area Municipal Utility Districts over Anticompetitive Conduct

AUSTIN— Texas Attorney General Greg Abbott today announced the settlement of an antitrust investigation into practices of R. Craig Rathmann and his firm, Rathmann & Associates, L.P.  The settlement resolves allegations that Rathmann conspired with his former employer to eliminate competition for financial advisory services in the Houston area.  As a result of this conspiracy, Houston-area Municipal Utility Districts (MUDs) represented by Rathmann & Associates paid inflated underwriting fees on their bond refundings.

Rathmann & Associates serves as a financial advisor to MUDs in the Houston area, and advises its clients on the process of issuing bond debt and bringing bond issues to market. As a financial advisor, Rathmann helps bond issuers select underwriters who are securities dealers that buy the bonds from the issuer and then resell them to investors. In this case, in 2003, Rathmann entered into an agreement with his former employer, RBC Capital Markets, LLC, (RBC) to allocate customers and to not compete against each other. In exchange for RBC agreeing not to solicit Rathmann’s financial advisory clients, Rathmann agreed to use RBC as lead underwriter on bond refundings, and to secure an underwriting fee of 1.25 percent of the bond sale proceeds.  The Attorney General’s analysis revealed that during a nine-year period, the fees paid by Rathmann’s clients were well above market rates.

Attorney General’s settlement agreement with Rathmann and Associates
Rathmann and Rauscher separation agreement

The Settlement Agreement prohibits Rathmann & Associates from entering into similar anticompetitive arrangements and requires it to inform clients of their right to choose an underwriter and negotiate its compensation. Rathmann & Associates has also agreed to pay $450,000 in lieu of civil penalties and to reimburse the Attorney General for investigative costs and attorneys’ fees.   The Attorney General resolved its case against RBC on October 2, 2014.